Ireland should be given more help to exit its bail-out programme in
recognition of the “huge” efforts made by Dublin, the International Monetary
Fund’s boss has said.

Christine Lagarde raised the prospect of moving some of Ireland’s bank rescue costs to the eurozone bail-out mechanism and urged the European Central Bank to cut interest rates to help the currency bloc’s struggling members.

She also called on Ireland’s lenders to work with households and businesses to restructure their debts without driving up insolvencies, in an effort to release the country from the overhang of a decade-long borrowing binge.

“We have an open mind about many issues, many of the terms and conditions, if you will, of the exit strategy,” the IMF managing director said on a visit to Ireland. “We will look at all the options.”

Ireland received a €67.5bn (£58bn) international bail-out in 2010, €22.5bn of which was from the IMF, after the country’s economy imploded. By cutting spending and wages, it was able to return to the bond markets last year. “Clearly a huge amount of work has been done and it should be recognised,” Ms Lagarde said.

The bail-out partners are now looking at ways of easing the burden on Ireland, by extending the maturity of their loans and transferring some of the original bank recapitalisation costs to the European Stability Mechanism.

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“Direct recapitalisation of the viable Irish banks can lower public debt — by switching some debt owed to Europe with equity — and help insulate the government from further potential drain if the economic situation gets worse,” she said. In a veiled attack on the ECB’s decision to hold rates at 0.75pc on Thursday, she added: “There is still some limited room for the ECB to cut rates further.”

Countries such as Germany and France should accept “somewhat higher inflation … [as] an aspect of pan-European solidarity”.

Separately, Italy’s credit rating was cut by Fitch yesterday to just three notches above “junk”. The rating agency cited the country’s deep recession and election deadlock for the downgrade, and said it could cut Italy’s BBB+ rating further if its recession was deeper and longer than forecast.